Solicitor — Breach of fiduciary duty — Breach of trust — Defendant solicitor acting in respect of property transactions on behalf of claimants – Claimants seeking damages for professional negligence – Defendants claiming indemnity or contribution from third party — Whether defendants acting in breach of fiduciary duty to claimants or in breach of trust – Claims dismissed
The first claimant was a businessman who lived in Israel. The other claimants were entities through which he owned and controlled assets for the benefit of himself and his family. The defendants were a firm of solicitors that had acted for the claimants in dealings in the London property market between 2004 and 2008. Disputes arose in respect of the purchase and sale of a long leasehold interest in a development site in London.
The claimants had sought damages for professional negligence, breach of fiduciary duty and breach of trust against a number of parties, including the third party, who had been a friend, business associate and trusted agent of the first claimant. The claimants accused the third party of betraying that trust and using his position as their confidential agent and representative in the UK to enrich himself at their expense. The third party commenced a claim against the defendants arising out of one of the property transactions. The defendants claimed that they had acted on the instruction of the third party, who had either actual or ostensible authority to act on the claimants’ behalf in respect of the transactions.
The claimants settled their outstanding disputes with the third party and his companies and both parties agreed to provide cross-indemnities in relation to their respective claims against the defendants. The third party discontinued his claim against the defendants. The latter sought an indemnity, or alternatively a contribution, from the third party. At court, the only remaining matters to be dealt with were the claimants’ claim against the defendants and the defendants’ Part 20 claim against the third party.
Held: The claims were dismissed.
The defendants’ retainer was to act and provide advice on the conveyancing and corporate aspects of the purchase of the London properties that the first claimant wanted to acquire. That retainer did not extend to providing advice on the commercial merits of the transactions, or on the price to be paid. The defendants had been instructed only after the price of the property had been agreed and the non-returnable deposit of £100,000 had been paid. The first claimant had wide business experience, with trusted legal and business advisers acting for him. What he lacked was the services of a London solicitor to handle the conveyancing and corporate sides of the acquisitions, and the defendants had been instructed in this regard. Had the first claimant required expert advice on the values of the properties or on the prices to be paid, he would have instructed valuers for the purpose. He could not reasonably have expected the defendants to advise him on such matters, which fell outside their expertise.
The defendants had not acted reasonably, given the deficiencies in the instructions to counsel and their failure to give proper and independent consideration to his advice. Nor would it be fair to excuse the defendants for the breach of trust, in view of their status as professionals acting in the course of their business for reward. They should have protected themselves by initiating suitable court proceedings, whether by way of interpleader or an application for directions, if the conflicting claims could not be resolved by consent. Further, the defendants had breached the contractual and tortious duties of care to the claimants when they made a payment to the third party out of their client account without authorisation: National Trustees Co of Australasia v General Finance Co of Australasia Ltd [1905] AC 373 (PC); Re Windsor Steam Coal Co [1929] 1 Ch 151 and Damodaran s/o Raman v Choe Kuan Him [1980] AC 497 considered; Re Becke (1854) 18 Beav 462 distinguished.
However, the claimants had not suffered any loss as a result of the defendants’ breaches. Although the claimants had lost £1.5m that had been paid without authority, the claim to recover that sum from the third party was among the matters covered by the compromise agreement between the claimants and the third party; the court could not conclude that the first claimant had not received the full value for the claim. Further, since the £1.5m had been paid out of, and returned to, the third party’s Spanish bank account, it was possible that an apparently missing Spanish settlement agreement might contain relevant provisions that had been kept from the court.
Since the money had been repaid to the third party, the defendants would have an unanswerable claim for contribution against him, pursuant to section 1(1) of the Civil Liability (Contribution) Act 1978, which provided that “any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise)”. Further, since the money had been paid to the third party, and he had therefore had the full use and benefit of that sum, the principle established by Dubai Aluminium Co Ltd v Salaam [2002] UKHL 48; [2003] 2 AC 366 applied: the third party had to bring the £1.5m into account before it could be “just and equitable” (in accordance with section 2(1) of the 1978 Act) to place any burden on the defendants, who had received no benefit from their breach of trust and negligence.
Both the action against the defendants and the defendants’ Part 20 claim against the third party had to be dismissed because the defendants had not been held liable in respect of any damage suffered by the claimants.
Hugh Norbury QC and Thomas Ben Elias (instructed by Fladgate LLP) appeared for the claimants; Justin Fenwick QC, Jamie Smith and George McDonald (instructed by Berrymans Lace Mawer LLP) appeared for the second and third defendants; John Machell (instructed by SNR Denton UK LLP) appeared for the third party.
Eileen O’Grady, barrister